House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Chapter 5 - Endorsement of perpetual bodies as deductible gift recipients

Outline of chapter

5.1 Schedule 5 to this bill will permit statutory bodies that are established in perpetuity by the Commonwealth Parliament to be endorsed by the Commissioner as deductible gift recipients despite not having a winding up clause.

Context of amendments

5.2 To receive endorsement as a deductible gift recipient the law or document constituting the fund, authority or institution must contain, inter alia, a winding up clause that states that any surplus assets must be transferred to another deductible gift recipient. A number of statutory bodies were established in perpetuity by Parliament and so do not have any winding up provisions. Accordingly, endorsement as a deductible gift recipient would be denied to such statutory bodies that would otherwise satisfy the endorsement provisions.

5.3 As part of its response to the Report of the Inquiry into the Definition of Charities and Related Organisations the Government decided to remove the requirement to have a winding up clause for entities established in perpetuity by the Commonwealth Parliament.

Summary of new law

5.4 Statutory bodies established by the Commonwealth Parliament in perpetuity that wish to be deductible gift recipients (other than those specifically named or that are prescribed private funds) will be required to satisfy the endorsement provisions other than the provision concerning the transfer of assets from the gift fund.

Detailed explanation of new law

5.5 In order to be a deductible gift recipient a fund, authority or institution that is described in Division 30 of the ITAA 1997 is required to be endorsed by the Commissioner. However, the endorsement provisions do not apply to those listed by name or to prescribed private funds. The endorsement provisions contain a requirement that the law, constitution or other governing documents of an entity that is a fund, authority or institution contain a winding up clause requiring that any surplus assets be transferred to a fund, authority or institution that is a deductible gift recipient. Similarly, an entity that operates a fund, authority or institution must contain a winding up clause as required above.

5.6 This amendment will modify the endorsement provisions for entities established by a Commonwealth Act that do not have a provision for the winding up or termination of the entity. Where such an entity is a fund, authority or institution, the amendment will remove the requirement to have a winding up clause in order to be endorsed as a deductible gift recipient [Schedule 5, item 1]. Similarly, a statutory body established by the Commonwealth Parliament in perpetuity that operates a fund, authority or institution will not be required to have a winding up clause to be endorsed as a deductible gift recipient [Schedule 5, item 2].

5.7 The amendment is retrospective to 1 July 2003. However, no taxpayer will be disadvantaged. The amendment will allow taxpayers a deduction for the making of a gift to such a fund, authority or institution.

Application provisions

5.8 The amendments to section 30-125 of the ITAA 1997 will apply from 1 July 2003. [Schedule 5, item 3]